Buffett: Let’s cheer people up by sticking it to the wealthy

posted at 3:31 pm on November 28, 2012 by Ed Morrissey

Via Real Clear Politics, Warren Buffett breaks Obamanomics down to its most critical component — populism. Buffett yesterday dismissed concerns that tax hikes will curb investor enthusiasm, but in the end, that issue seems to be less important than making the middle class happier by sticking it to the rich:

MATT LAUER, TODAY: So bottom line, would raising taxes on the wealthiest Americans have a chilling effect on hiring in this country?

WARREN BUFFETT: No, and I think would have a great effect in terms of the morale of the middle class, who have seen themselves paying high payroll taxes, income taxes. And then they watch guys like me end up paying a rate that’s below that, you know, paid by the people in my office.

On one level, Buffett’s right. If he called me tonight and said, “Ed, I’m telling you that this investment is golden and you need to put some serious money in it,” I wouldn’t be asking about the capital-gains rate down the road. (By the way, Warren, drop me a line sometime and, er, let’s do lunch.) When you have a sure thing, there isn’t any risk. But that’s the problem in his argument, too. Most capital investors don’t put money on risk-free investments, in large part because they rarely if ever appear. When they want low-risk options, they turn to bond markets and established firms, not ventures that create innovation and job expansion. The kind of job-creating innovation comes from investment in activities that fail and lose money more than they succeed and make money. Because venture capitalists put their money at risk rather than derive it from salary, investors want better return on profit — and the US has always calculated tax rates differently on the two in order to encourage investment. That’s nothing new.

Buffett also mentions “payroll taxes” as part of the mix, which is correct as far as it goes. Anyone who works for themselves, in whole or in part, know how costly those taxes can be. But what are “payroll taxes”? They are the funds deducted for Social Security, Medicare, unemployment insurance, and disability, not the general fund (in principle, anyway), and they relate specifically to benefits that cap out past a certain income level. They pay for benefits due to the worker. If payroll taxes are too high, perhaps we need to recalculate benefits — which we need to do anyway, and which would resolve most of the issues Buffett claims to address with his new take on the Alternative Minimum Tax.

The kind of issues that Buffett wants to fix would be better addressed in systemic tax reform that takes a look at the relationships between investors, managers, workers, and the distortions created by the American tax codes. There may be plenty to fix in that kind of effort, including the tax rates at all levels, as well as the spending this system is supposed to fund. Instead, though, we’re getting arguments that we need to boost morale by engaging in petty populism through the kind of short-term, short-sighted thinking that created the system that so badly needs reform.

The intent is irrelevant. Does increasing the tax rate on things cause a reduction in the consumption of those things? Yes or No. It either has that effect or it doesn’t – intent means nothing.
If yes, then increasing taxes on wealth generation will negatively impact wealth generation.
If no, then all those other taxes libs push will NOT do what the libs intend for them to do.
dentarthurdent on November 28, 2012 at 5:46 PM

You are wrongly equating different scenarios and then asking ‘Yes or No?’.
Also both in the orginal post and in your comment the ‘intent’ of the taxes is raised.
Income tax is intended to raise revenue. The intent is the same at 35% or 39%.
What you are arguing is that an investor will lose the incentive to invest and seek profit at the higher bracket.
What will he/she alternately do here?

Per Rush today:
“But you don’t see Buffett, you don’t see any rich guys proposing a wealth tax. You see them proposing an income tax increase, which is designed to make sure that people keep less and less of what they earn so they become less and less likely to amass and accrue wealth. They’ve got theirs.”
–
And he’s correct.

I also understand that taxes on investment income is NOT intended to encourage people to invest less.
verbaluce on November 28, 2012 at 5:39 PM

I said – “intent is irrelevent”.
Why do you refuse to answer a simple question? (rhetorical question – you’re a lib so you can’t/won’t answer straight questions)
When taxes are increased on a particular product or activity, is consumption of said product or participation in said activity reduced or not? Simple yes or no.
The intent is irrelevant – does this happen or not?

Since you don’t seem to understand the economics involved, I can try to explain it for you, but I can’t comprehend it for you.
If the taxes go up for any particular activity – capital gains, dividends, wage income, etc, the wealthy will find ways to circumvent those increased taxes. They may invest less, or they may invest more in tax free bonds or other tax shelters, or they may invest more overseas, or they may defer earnings in some way – hoping eventually the rates will change again. But they will find a way to get out of paying those taxes. That’s what they pay their lawyers and accountants for. Why do you think your hero Buffet has been paying his lawyers to fight the IRS over the last 10 years of taxes on Berkshire-Hathaway? He’s the ultimate “do as I say, not as I do” hypocrit – as are nearly all liberals.

There is a difference between WEALTH and INCOME. Wealth is something you have and income is what you earn (whether you work a job or own a business) and/or is generated by your wealth through investments.

Higher income taxes, which is what Buffet is referring to, would not impact him significantly because he’s arranges his investments such that income is kind of incidental though not irrelevant. His net worth means that even very low dividend or interest rates produce what we would consider (based on our net worths) very substantial income. The capital gains that would result from managing the investments makes up a high proportion of that income and can’t be avoided except, pretty much, by going static and not changing any investment.

I think he would be much less approving of a wealth tax because such a tax would make many types of investments very problematic. The old “land rich, cash poor” adage would start to apply where his investments would then have to throw off enough cash to pay income and wealth taxes. There would certainly be an equilibrium or relatively “ideal” mix of investments that would be optimal to such a situation but getting there, for him and most everyone else would likely be costly.